Bank Competition and Stability: Evidence from Rural Banks in Bali

Abstract

The relationship between competition and stability is widely understood by researchers with two different perspectives, namely competition-fragility and competition-stability. A lot of research have been conducted regarding the relationship between competition and stability in the banking sector but have not specifically examined the stability of classic model of rural banks. The purpose of this study was to empirically examine the effects of rural banks competition and stability based on the aspects of capital, earning asset quality, profitability and liquidity. The indicators used in this study are adjusted to the characteristics of rural banks and existing regulations. The results of the study indicate that the competition variable has a significant positive effect on the stability of rural banks, and supports the view of competition-stability.